Consolidated group receives extension to waive NOL carryback

Plain-English summary

A consolidated group intended to waive the carryback period for a consolidated net operating loss, and its other returns were consistent with that intent, but it failed to file a valid election with the loss-year return. Because the consolidated election's deadline is set by regulation, the IRS had discretion to grant relief under Treas. Reg. § 301.9100-3. It found that the parent had reasonably relied on a qualified tax professional and acted before the IRS discovered the failure. The IRS gave the parent 60 days to amend the return and file the election, conditioned on the group's aggregate tax liability not being lower than it would have been with a timely election.

Ruling snapshot

• Question: May the consolidated group receive more time to elect to relinquish the carryback period for its CNOL?
• Outcome: Approved, with a 60-day filing period and tax-liability condition
• Key authorities: IRC § 172(b)(3); Treas. Reg. §§ 1.1502-21(b)(3)(i), 301.9100-1 through 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                          Department of the Treasury
                                                                  Washington, DC 20224

Number: 201616006                                                 Third Party Communication: None
Release Date: 4/15/2016                                           Date of Communication: Not Applicable
Index Numbers: 1502.21-00, 9100.22-00
                                                                  Person To Contact:
-----------------------------                                     ------------------, ID No. ------------------
----------------                                                  Telephone Number:
----------------------------------------                          ----------------------
--------------------------                                        Refer Reply To:
---------------------------                                       CC:CORP:B06
                                                                  PLR-137209-15
                                                                  Date:
                                                                  January 19, 2016


Legend

Parent                     =         -----------------------------------------
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Sub 1                      =         -----------------------------------------------------
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Sub 2                      =         -----------------------------
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Sub 3                      =         -----------------------------------
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Company Official =                   -------------------------
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Tax Professional           =         ----------------
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Date 1                     =        ----------------------

Date 2                     =        -----------------------

Date 3                     =        ---------------------------

Dear -------------------:

We respond to a letter dated November 12, 2015, submitted on behalf of Parent,

PLR-137209-15                                2

requesting an extension of time under §§ 301.9100-1 through 301.9100-3 of the
Procedure and Administration Regulations to make an election. The extension is being
requested for Parent to make an election under § 1.1502-21(b)(3)(i) of the Income Tax
Regulations to relinquish the entire carryback period for the Parent consolidated group’s
consolidated net operating loss (“CNOL”) for the short tax year beginning Date 1 and
ending on Date 2 (the “Election”). The material information submitted for consideration
is summarized below.

Parent was the common parent of a consolidated group (“Parent Group”) for the tax
year ending on Date 2. Parent, Sub 1, Sub 2 and Sub 3 comprise the Parent Group.
Parent Group sustained a CNOL in the tax year ending on Date 2. Parent intended to
relinquish the carryback period for its consolidated group’s CNOL on its tax return for
the tax year ending on Date 2. All prior and subsequent returns for Parent were filed
consistent with a valid election having been made. However, for various reasons, a
valid election was not filed. After Date 3, the date that the return and the Election were
due (with extension), it was discovered that a valid election had not been filed.
Subsequently, this request was submitted for an extension of time to file a valid election.

Parent has represented that Parent Group has not, and will not, carry any portion of the
CNOL to a prior consolidated return year of Parent Group. Parent has also represented
that no member of the consolidated group of which Parent was the common parent for
the tax year ending on Date 2 had a separate return year, within the meaning of
§1.1502-1(e), at any time during the carryback period. Parent has further represented
that Parent Group is not seeking to alter a return position for which an accuracy-related
penalty has been or could be imposed under § 6662.

Section 1.1502-21(b)(3)(i) provides that a consolidated group may make an irrevocable
election under § 172(b)(3) to relinquish the entire carryback period with respect to a
CNOL for any consolidated return year. The election is made in a separate statement
entitled “THIS IS AN ELECTION UNDER § 1.1502-21(b)(3)(i) TO WAIVE THE ENTIRE
CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert
consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH [insert
name and employer identification number of common parent] IS THE COMMON
PARENT.” Section 1.1502-21(b)(3)(i) also provides that the statement must be filed
with the group’s income tax return for the consolidated return year in which the loss
arises.

Under § 301.9100-1(c), the Commissioner has discretion to grant a reasonable
extension of time to make a regulatory election, or a statutory election (but no more than
six months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code except subtitles E, G, H, and I.

Sections 301.9100-1 through 301.9100-3 provide the standards the Commissioner will
use to determine whether to grant an extension of time to make a regulatory election.
Section 301.9100-1(a). Section 301.9100-2 provides automatic extensions of time for
making certain elections. Section 301.9100-3 provides extensions of time for making

PLR-137209-15                                  3

regulatory elections that do not meet the requirements of § 301.9100-2. Requests for
relief under § 301.9100-3 will be granted when the taxpayer provides evidence to
establish to the satisfaction of the Commissioner that the taxpayer acted reasonably
and in good faith, and that granting relief will not prejudice the interests of the
government. Section 301.9100-3(a).

In this case, the time for filing the election is fixed by the regulations (i.e., § 1.1502-
21(b)(3)(i)). Therefore, the Commissioner has discretionary authority under § 301.9100-
1 to grant an extension of time for Parent to file the election, provided Parent
establishes it acted reasonably and in good faith, the requirements of §§ 301.9100 -1
and 301.9100-3 are satisfied, and granting relief will not prejudice the interests of the
government.

Information, affidavits, and representations submitted by Parent, Company Official and
Tax Professional explain the circumstances that resulted in the failure to timely file a
valid election. The information establishes that Parent reasonably relied on a qualified
tax professional who failed to make, or advise Parent to make, the Election and that the
request for relief was filed before the failure to timely make the election was discovered
by the Internal Revenue Service. See §§ 301.9100-3(b)(1)(i) and (v).

Based on the facts and information submitted, including the representations made, we
conclude that Parent has shown it acted reasonably and in good faith, the requirements
of §§ 301.9100-1 and 301.9100-3 are satisfied, and granting relief will not prejudice the
interests of the government. Accordingly, an extension of time is granted under
§ 301.9100-1, until 60 days from the date on this letter, for Parent to file the Election
with respect to the relinquishment of the entire carryback period for the CNOL for the
tax year ending on Date 2, as described above.

The above extension of time is conditioned on the taxpayers’ (Parent and the members
of its consolidated group) tax liability (if any) being not lower, in the aggregate, for all
years to which the Election applies, than it would have been if the Election had been
timely made (taking into account the time value of money). No opinion is expressed as
to the taxpayers’ tax liability for the years involved. A determination thereof will be
made by the Director’s office upon audit of the Federal income tax returns involved.

Parent must file the Election in accordance with § 1.1502-21(b)(3)(i). Parent Group’s
return for the tax year ending on Date 2 must be amended to attach the election
statement required by § 1.1502-21(b)(3)(i). A copy of this letter must be attached to the
election statement. Alternatively, if the Parent Group files its returns electronically,
Parent may satisfy this latter requirement by attaching a statement to its return that
provides the date and control number of this letter ruling.

We express no opinion as to the tax effects or consequences of filing the election late
under the provisions of any other section of the Code and regulations, or as to the tax
treatment of any conditions existing at the time of, or resulting from, filing the election
late that are not specifically set forth in the above ruling.

PLR-137209-15                                  4

For purposes of granting relief under § 301.9100-1, we relied on certain statements and
representations made by Parent, Company Official and Tax Professional. However, the
Director should verify all essential facts. Moreover, notwithstanding that an extension is
granted under § 301.9100-1 to file the election, penalties and interest that would
otherwise be applicable, if any, continue to apply.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) provides
that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                       Sincerely,


                                       _Ken Cohen________________
                                       Ken Cohen
                                       Senior Technician Reviewer, Branch 3
                                       Office of Associate Chief Counsel (Corporate)

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